“To be a disciplined investor you have to be willing to stand by and watch other people make money on things that you passed on” – Howard Marks

This Howard Marks quote is brilliant because it strikes a chord in each one of us. We’ve all been there. Maybe you are there today, watching someone else do well in something you passed on. It all relates back to comparisons, and comparisons are unproductive and corrosive. We all invest differently. Don’t compare yourself to others. You aren’t running their race. Compare yourself to yourself two years ago.

Extraordinary returns follow extraordinary discipline. An investor’s goal should always be to make as few investment decisions as possible. This means you are going to pass on many investments that will ultimately do well without you. Experienced investors should openly accept this. Why? Because doing well in something you shouldn’t have invested in doesn’t teach you anything. It means you got lucky.

As you mature as investor it’s important NOT to compare yourself to other investors and their performance. If you are a contrarian investor, which many of us claim to be, you also can’t worry about other people’s opinion of you. If you worry about what people think of you it’s because you have more confidence in other people’s opinion of you than you do in your own.

I was going to write a bit more on this topic but realized Howard Marks already did an amazing job with it in his most recent talk The Truth About Investing. Here is a snippet below:

To be a successful investor you have to have a philosophy and a process you believe in and you can stick to even when the times get tough. This is very important. If you don’t have a courage of your convictions and patience and toughness, you can’t be an investor. Because you’ll constantly be driven to fall in line with the consensus by buying at the top and selling at the bottom.

But, it’s important to note that no approach will allow you to profit from all kinds of opportunities or in all in environments. You have to be willing not to participate in everything that goes up. Only the things that fit your approach. Now, in ’99 in the tech boom Buffett did not buy technology. And in the first quarter of 2000, for any of you that were around, everybody said “That’s it for Buffett. He’s past his prime. He’s too old.”. 17 years ago he was only 70. They said too old. You know? But the point is “I don’t do tech. I don’t understand it. And it’s not for me. I’m going to sit it out.” The truth is, however, one of the most corrosive of all the difficult human emotions is the feeling of having to sit by and watch other people make money. Nobody likes that. And so, what happens is a process I call capitulation.

You know? You don’t like it at 60. You don’t like it at 80. You don’t like it at 100. But when it hits 150 you say “Okay. I’ll get onboard.” And, of course, that’s usually closer to the top than it was to the bottom. And to be a disciplined investor you have to be willing to stand by and watch while other people make money that you passed on. You don’t have to invest in everything. You don’t have to catch every trend. You should invest within yourself, in the things you know about and stick to it. And among other things success has … One of my sayings is “Success in not good for most people.” And we all know successful people. We all know people who have been successful that makes them think they are smart. It makes them think if they’re smart they must be able to do everything. And, of course, that’s a very dangerous thing. And now, that one success might have been because they were smart one specific field which they should stick to or it might be because they were lucky. Or some combination. But most people, when they are successful reach a dangerous conclusion about their own ability.

Every investment approach, even if skillfully applied, will run into environments for which it is ill suited. By and hold. Growth stocks. Value stocks. Small stocks. Large stocks. Foreign. Domestic. And that means that even the best of investors will have periods of poor performance. Nobody performs great all the time. Buffett was considered over with. Now, even if you are correct in identifying a divergence of popular opinion from eventual reality, that varying perception that I mentioned, it can take a long time for the price to converge with value and it can require something that acts as the catalyst. Underpriced does not mean “Going up tomorrow.”. Overpriced does not being “Going down tomorrow.”. And we, everybody has to know that. And in order to be able to stick with an approach or decision until it proves out, which can be a long time, investors have to be able to weather periods when the results are embarrassing. This can be very difficult.

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